108 Greenwich St., 5th Fl New York, NY 10006
For personal assistance, call
877-880-8086
Get Started

The Best Small Business Line of Credit Guide

Business Lines of Credit At a Glance

BUSINESS LINE OF CREDIT

 

Excel Capital offers true unsecured business lines of credit with monthly payments.   This program is designed for the business owner who wants flexibility with the way term of repayment. 

 

This Program has a flat fee per month that gives you the flexibility to draw down as much as you want when you want and only pay for the time period you use the funding for.

 

So if you pay the line of credit back in 1 month you only get charged the 1 months fee. 

 

However, while most small business owners are familiar with the term “business line of credit” (or Business LOC for short), they don’t fully understand what they are and whether or not a business line of credit would be of use to them and their business. Nor do they understand how this can be different from a small business loan or Term loan.

 

There are multiple financial products that fall under the unsecured business line of credit umbrella, along with a variety of uses, so in this guide, it’s our goal to help you understand the difference.

 

For starters, there are two main types of credit lines offered:

 

unsecured business line of credit

 

But before we delve into the major difference between each of these and what’s required to apply for both, let’s review how lines of credit work and why they’re useful.

 

In this guide, we’ll cover:

 

 1. How a small business line of credit works

 

 2. What is a business line of credit good for?

 

 3. How is a business line of credit repaid?

 

 4. Types of business lines of credit

 

 5. How to qualify for a business line of credit 

 

 

How an unsecured business line of credit works

 

How line of credit works is quite different than your average loan. An unsecured business line of credit uses what is called “revolving credit”.

 

Revolving credit is exactly what it sounds like: once approved, you get access to a revolving balance of credit which you can use for a variety of purposes.

 

As you pay off the balance, that credit once again becomes available and the process can be repeated over again for the length of the credit line.

 

For that reason, how lines of credit works is much more similar to credit cards than traditional loans, which offer a lump sum once and then you’re done.

 

However, they’re different from credit cards in many ways as well.

 

With credit cards, you get a preset spending limit.

 

However, while similar, with a line of credit it’s not so much a preset spending limit as it is a max approval amount.

 

This gives you the flexibility to draw down as the need arises until you’ve maxed out the line of credit. Typically, with either 6 or 12-month repayment windows.

 

Once requested, the funds are then either wired or ACH’d directly into your business checking account.

 

This is different than a credit card since you have to swipe the card with a vendor who accepts credit cards if you want to use the funds. In addition, if you need cash you have to pay hefty fees.

 

Once maxed out, you can continue repaying and reusing the funds within your line of credit provided you make payments on time and never exceed your credit limit.

 

Many business owners confuse Business Lines of credit with unsecured loans or merchant advances but they are very different.

 

With business LOC, you only pay for what you use and keep the unused funds on reserve for emergency business needs with no cost of funds.

 

As long as the line of credit is open you do not need to go through an more underwriting or submit any more paperwork

 

This way you have the comfort of knowing you have access to capital with the click of a button without any paperwork or waiting.

 

 

What is a Commercial line of credit good for?

 

Because you can’t pay your rent or payroll with a credit card, combined with the increased difficulty of being approved for a traditional loan from a major bank, if cash runs low, as a small business owner your options are sparse for injecting the business with the cash it needs to keep things running.

 

An unsecured business line of credit is useful because it gives you the flexibility of having a cash equivalent to handle such situations.

 

For all intents and purposes, having a line of credit is similar to a savings account that you can dip into as needed with the ebbs and flows of your business cycle.

 

When cash runs low, you can use your line of credit to get the funds you need to maintain daily operations and keep things chugging along. This is invaluable for small businesses where the inability to pay for daily expenses can be a death sentence.

 

However, a business credit line is great for several other reasons as well. One of the best uses is in expanding your business.

 

If you’re entering a busy season, expansion period, or sales are just picking up and you need the extra funds to:

 

  • Hire and train new employees
  • Buy inventory
  • Or renovate your location
  • Cash flow
  • Working Capital

 

Then a line of credit can provide you with the funds you need to grow your business without it holding back your daily operations.

 

The uses are virtually limitless, with a business line of credit having the potential to be used for everything from supplementing cash flow to aiding growth and covering unexpected expenses.

 

Most Business Owners like having a working capital cushion that they can use without having to actually take a loan. A business line of credit gives you the peace of mind knowing that you have access to capital without having to go through an application process

 

 

How is a commercial line of credit repaid?

 

With credit cards, you have the option to do minimum payments over the life of the account and accrue interest charges on the outstanding balances.

 

Generally, these minimum payments are at roughly $25.00 per month or based on a percentage of your outstanding balance.

 

However, an unsecured business line of credit works a bit differently.

 

What are the business lines of credit rates?

 

With our flexible programs, the rates start at 1.5% per month and can go as high as 5% per month. We do not charge any draw down fees like most other firms offering lines of credit and you do not get penalized for early payoff.

 

Business line of credit rates and repayment terms are different as well. Since most business lines of credit are based on 6 or 12-month revolving periods, the repayment schedule is set according to the amount drawn down, the cost of funding, and the term.

 

However, every institution has its own rate and fee schedule so make sure to ask when looking for the best business line of credit for your business. 

 

Unsecured business line of credit rates and repayment terms (Example)

 

Unsecured line of credit rates can vary from individual to individual but what makes an unsecured line of credit truly a great loan product is how flexible the unsecured line of credit rates can be. Below is a quick example of how unsecured line of credit rates and repayment terms work.

 

If you’re approved for a $150,000 unsecured line of credit on a 6 or 12-month term with a monthly fee of 2.75% and you draw down on $30,900.00, your payment schedule will look like this:

 

 

Business Line of Credit Rates

 

 

This is a typical line of credit schedule for a business with a sub-680 credit score. The above are typical example rates, however, rates can be as low as 1% per month.

 

 

Types of business line of credits

 

Business lines of credit are split between 2 primary types, each with their own unique benefits. Which of the 2 you choose will depend on your business needs.

 

1. Unsecured: An unsecured business line of credit doesn’t require collateral, however, the line of credit is typically smaller along with a higher interest rate when compared to a secured line of credit.

 

2. Secured: A secured business line of credit is generally available at a cheaper rate, making it the more attractive option for business owners. However, because they’re riskier for lenders, they need to be backed by some sort of asset.

 

That collateral can be capital such as property, however, it typically comes in the form of inventory, accounts receivable, or something else. If you’re unable to pay back the loan, your lender may seize that collateral to pay the balance.

 

Figuring out which of the above types of business line of credit is best for you and your business is an important part of the process of applying for a business line of credit.

 

Before applying, consider various factors such as the state of your business (accounts receivable, etc.) and the forecast for the coming year to decide which would better fit your unique situation.

 

 

How to get a business line of credit?

 

So, I know what you’re thinking. This all sounds great– but do I qualify?

 

Both secured and unsecured business lines of credit require your business to be in good standing.

 

However, it’s easier than ever to be approved and the minimum requirements allow even young businesses to be approved, provided you’re in good standing (albeit for smaller, shorter-term lines of credit).

 

What Are The Requirements?

 

If you are a business owner the first thing you probably want to know is the business line of credit requirements. There are several requirements for a business loc but compared other types of loans a business loc requires much less docs. We will break down all the business line of credit requirements below.

 

Both Secured and Unsecured Business Lines of Credit will require your business to be in good standing.

 

All lenders typically prefer to work with businesses that are well-established and in good financial standing, thus proving to the ability to pay back the loan. Various financial documents may be requested to support this. Here are some basic qualification requirements:

 

1. Time in business: At least 1 year

2. Credit score: 540+

3. Annual revenue: $50,000

4. Less than 3 negative occurrences in your bank account in the last 90 days.

 

Keep in mind that the funding amount, duration of the credit line, and repayment terms all depend on where your business stands in terms of credit rating, history, revenue, and several other factors.

 

What’s Documents Will be Needed To Qualify for a Commercial Line of Credit?

 

Both Secured and Unsecured Business Lines of Credit will require your business to be in good standing.

 

All lenders typically prefer to work with businesses that are well-established and in good financial standing, thus proving to the ability to pay back the loan. Various financial documents may be requested to support this. Here are some basic qualification requirements:

 

  • Completed application
  • Last 4 months of business bank statements
  • Or completion of our online application

 

Once approved, You will have access to your funds electronically via our secure portal.

 

You will have the ability to draw down as much as you have available electronically and payback whenever you feel like.

 

Keep in mind Payments will be debited out of your account electronically once a month until the business line of credit is paid in full.

 

From the flexibility to pull out cash when your business needs it to always having the funds available to invest in growth, a business line of credit allows your business an unrivaled level of flexibility and reliability.

 

 

See what your business qualifies for

Some required fields are empty
Please enter a valid email address

Many small business Owners successfully use our financing to

  • Purchase inventory
  • Facilitate expansion
  • Hire additional staff
  • Finance Marketing
  • Increase Cash Flow
  • Upgrade facilities
  • Consolidate business debt